In Bilski, the nine member majority opinion stated emphatically that a “machine-or-transformation” test” as set forth by the Supreme Court is the sole test for subject matter eligibility for a claim of patentability for a process: “A claimed process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state of things.”

Significantly, as a result of adopting this “machine-or-transformation test,” the Federal Circuit rejected the test that had been adopted in State Street Bank, the case that famously established that business methods are patentable. State Street had asked whether a process produced “a useful, concrete and tangible result.” Bilski reconsidered: “[W]e also conclude that the ‘useful, concrete and tangible result’ inquiry in inadequate and reaffirm that the machine-or-transformation test outlined by the Supreme Court is the proper test to apply.”

Applying the test, the Federal Circuit determined that Bilski’s process for hedging risks in commodities trading sought to claim a “non-transformative process that encompasses a purely mental process of performing requisite calculations without the aid of a computer or any other device.” It thus failed the machine-or-transformation test.

Since tax strategy patents are considered a subclass of business method patents and these patents have been granted on the basis of their having useful, concrete and tangible results, the case is, in general, good news for those of us who question whether tax strategy patents should be patentable. I would like, however, to make three more specific observations.

First, this case, while it will have an impact on tax strategy patents, does not treat them differently from other business method patents. While I and many others believe there are good policy reasons to enact legislation to prohibit tax strategy patents, the test enunciated here is a test under current law and applies to all business method patents. The consequences of the decision will depend on how PTO examiners understand and apply the test to the patent applications they review.

Second, the decision makes very clear the status of tax patent claims that involve only mental processes. Like the process claimed by Bilski, some tax strategy patents involve a purely mental process of performing calculations without the aid of a computer. Bilski confirms another Federal Circuit case, Comiskey, in holding that such process claims are not patentable.

Third, what the decision means for applications that involve the use of computers is much less clear. Many, perhaps most, tax strategy patents call for the use of a computer. The opinion leaves open the question of what it means for a process to be tied to a “particular machine:” “We leave to the future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.” Thus, what is perhaps the most important practical question is left unresolved.